In the matter of Challenge Bank Ltd

[1995] FCA 1168

CATCHWORDS

CORPORATIONS - compromises and arrangements - particular schemes - motion seeking Court approval of schemes of arrangement - whether statutory majorities properly obtained - fairness of schemes - whether advertising requirements

Corporations Law, ss411(4), 411(6), 411(11), 411(12) and 411(17)(b).

CORPORATIONS - company finance - capital - reduction of share capital - whether authorised by Articles of Association - whether need to consider creditors in circumstances.

Corporations Law, ss195(3), 195(4) and 195(6)

Re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213
Re Dorman, Long and Company Limited [1934] 1 Ch 635

CHALLENGE BANK LIMITED (ACN 009 230 433)
NO. WAG 3048 OF 1995

JUSTICE R D NICHOLSON
PERTH
30 NOVEMBER 1995

IN THE FEDERAL COURT OF AUSTRALIA     )    LIMITED DISTRIBUTION

WESTERN AUSTRALIA DISTRICT REGISTRY   )

GENERAL DIVISION  )    NO. WAG 3048 OF 1995

IN THE MATTER OF:                CHALLENGE BANK LIMITED

(ACN 009 230 433)

Applicant

CORAM:JUSTICE R D NICHOLSON

DATE:30 NOVEMBER 1995

PLACE:PERTH

REASONS FOR JUDGMENT

The Court has before it a motion seeking orders approving schemes of arrangement ("the schemes") pursuant to s411(4) of the Corporations Law and confirming an associated reduction of capital pursuant to s195(5) of the same law.

This matter was previously before the Court and orders were made on 13 October 1995 ("the first hearing").  The effect of those orders was to order the convening of certain meetings for the purpose of seeking shareholder and other approvals of the schemes.  This motion comes to the Court following the convening of those meetings.

In considering the application of s411(4) and the approval pursuant to subs(6) of that section, the Court is required to consider and to be satisfied whether the proposals in the schemes are at least fair and reasonable from the viewpoint of an intelligent and honest person, that is, a person who might approve of it. In this respect I have been taken to the dicta of Fry LJ in Re Alabama, New Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213 at 247, which was followed by Maugham J in Re Dorman, Long and Company Limited [1934] 1 Ch 635 at 656.

It is submitted for the applicant that, as this is the second hearing and as the Court has already approved the schemes being put to the meetings to which I have referred, it is not necessary at this time for there to be any investigation by the Court of the fairness of the schemes beyond finding whether the relevant statutory majorities have been properly obtained because, if those majorities have been obtained, they should be taken as establishing, at a prima facie level, the fairness of the schemes.  It is not necessary for me to make any definitive statement concerning the function of the Court on a second hearing such as this because in this case there is no evidence in opposition to the granting of approval of the schemes or evidence suggesting in any way that there is any lack of fairness inherent in them. 

This is supported by reference in particular to the evidence relating to the steps which have been taken pursuant to the orders made at the first hearing which establishes that the meetings and the associated extraordinary general meeting were duly convened, there was due conduct of those meetings and at those meetings relevant statutory majorities have been obtained.  In particular it is significant that each of the statutory majorities was of the order of above 95% and in some cases almost 100% in favour of the particular scheme.

I am satisfied that proper notice has been given to those having an interest in objecting to the motion for approval and confirmation orders, as there was proper notice given in respect of each of the meetings.  The evidence is most thorough in its presentation of the steps taken in that respect.

I also have before me, in the form of correspondence directed to the solicitors for the applicant from the Australian Securities Commission ("the Commission"), advice that the Commission has no objection to the proposed schemes of arrangement and it expresses its position in that respect for the purposes of s411(17)(b) of the Corporations Law.  In addition, while it may not be an essential express pre‑condition to the granting of the Court's approval, notification has been given to the Deputy Commissioner of Taxation. 

Turning to the reduction of capital, I am satisfied that the requisite authority permitting a reduction of capital is present in the relevant Articles of Association of the applicant.

It is also necessary for me to consider whether s195(3) of the Corporations Law has application and that requires the interests of creditors to be considered. There are special circumstances in relation to these applications - namely, that the procedure which the schemes have adopted, of cancelling out the public shareholders and then recapitalising the cancelled sum by a re-issue of shares to the continuing shareholder, is a procedure which has the effect of ensuring that the paid up share capital of the applicant remains unchanged. The position of creditors does not therefore arise for consideration pursuant to s195(3) because there is no diminution of liability in respect of unpaid share capital or the payment of any shareholder of any paid-up share capital.

Section 195(3) has no application to these applications because there are no factual circumstances which require the Court to consider the application in light of that provision.
Subsection 195(4) provides that the Court may, having regard to any special circumstances of any case, direct that all or any of the provisions of that subsection shall not apply in respect of creditors included in a class of creditors.  While it may not add to the legal effect of what I consider to be the position, I am satisfied that, for the purpose of removing any doubts, it is appropriate that the Court give a direction pursuant to the subsection.  The making of that direction will have the advantage that notice will be given by the direction to any third party that the Court has duly considered that
aspect of the requirements in relation to reduction of share capital. 

In relation to the provisions of s195(6) and the drafting of proposed order 3, I am satisfied that the provisions of that subsection will be given effect by an order in the form of the short minute - that is, that the disclosure in that order of the full amount of the share capital following the scheme of arrangement becoming effective best discloses and complies with the requirements of the subsection rather than the sum which may momentarily be referrable as the share capital as the scheme is taking effect.

It is relevant to note that on behalf of Westpac Banking Corporation ("Westpac") an undertaking has been given to the Court which mirrors a resolution of the board of directors of that company duly convened and held on 5 October 1995, to the effect that for the purposes of facilitating each scheme of arrangement by which a merger between that bank and the applicant is proposed to be achieved, Westpac shall, subject to the approval of the Court being granted to the schemes in question:

"do and cause to be done all such things as are necessary to ensure that payments are made and, as applicable, shares in the capital of the bank are allotted (and ancillary matters including drawing of cheques and issue of certificates) are attended to in accordance with the provisions of the A implementation A agreement relating to those schemes of arrangement."

The requirement in s411(11) of annexing orders to every copy of the Memorandum of Association of the company issued after the Court approves the schemes may be subject to dispensation granted pursuant to s411(12). I am satisfied that such dispensation should be granted.

The motion also seeks an order excusing compliance with the time necessary for advertising.  The relevant advertisements were not lodged so as to allow the appropriate number of days notice prior to the Court hearing specified in the rules.  The advertisements were however published.  In addition, the anticipated date of the Court hearing this application was notified to all parties in papers sent to persons entitled to vote on the various schemes.  Therefore, this is not a case where the hearing before the Court today is in any sense unknown to those who might be most interested.  In my view such an order should be made. 

Finally, it is asked that the orders not be entered before 21 December 1995.  There are sound practical commercial reasons for that.  Namely, that the identity of relevant shareholders, notification to stock exchanges and payments must be geared to a definitive time in order that the scheme can be properly and effectively implemented.  I am therefore entirely satisfied that an order should be made deferring entry until 21 December 1995.

For these reasons I am prepared to grant the motion and to make the orders in the minute before me as amended in draft order 4 and 6 during the course of submissions.

I certify that this and the preceding 4 pages are a true copy of the Reasons for Judgment of his Honour Justice R D Nicholson.

Associate:

Date:

APPEARANCES

Counsel for the Applicant:        Mr M B Oakes SC

and Mr S K Dharmananda

Solicitors for the Applicant:     Corrs Chambers Westgarth

Counsel for

Westpac Banking Corporation:      Mr R J Ainslie

Solicitors for

Westpac Banking Corporation:      Mallesons Stephen Jaques

Date of Hearing:                 30 November 1995

Date of Judgment:                30 November 1995